Buy-to-let mortgages plummet 93pc in a year

The number of buy-to-let mortgages has plummeted by 93 per cent in the past year leaving tens of thousands of novice landlords struggling to find affordable deals.

Figures revealed to The Daily Telegraph show there were 4,384 mortgages available to landlords 12 months ago compared with just 307 deals today.

Experts said the sharp fall in the number of buy-to-let loans available will hit the estimated 110,000 novice landlords with only one buy-to-let mortgage because they do not have a portfolio of properties to help cushion the blow of a slowing market. Landlords are also having to cope with higher interest rates on those mortgage deals that are still available.

The research, by price comparison website Moneysupermarket.com, revealed that buy-to-let mortgage rates have jumped 0.63 per cent to 7.46 per cent during the past year for landlords looking to borrow 85 per cent of the value of their property.

The increase in rates mean landlords will have to increase rents or find the shortfall themselves. On a £100,000 interest-only mortgage, for example, the rent needed to cover the monthly mortgage payments has increased from £569 to £622.

Lenders are applying much stricter lending criteria on their buy-to-let deals. On average, lenders now require the rental income to be 19 per cent greater than the monthly mortgage repayments - up from 13 per cent a year ago to qualify for a buy-to-let deal. The research revealed that, in effect, landlords will need to increase the rents that they currently charge by 15 per cent to keep up with the changing market.

Louise Cuming, head of mortgages at price comparison website moneysupermarket.com, said the research indicated "worrying times" for tenants, landlords and developers.

She said: "Landlords wishing to remortgage buy-to-let properties will find it difficult, with lenders demanding sizeable deposits or charging higher rates. This could force landlords to re-evaluate whether it is worthwhile staying in the sector in the current climate. With property prices falling though, there may well be many landlords having to sell their investment at a loss."

There are almost 1.1 million buy-to-let mortgages outstanding, according to The Council of Mortgage Lenders (CML).

Experts said many property investors were being forced to move automatically onto their lender's standard variable rate (SVR) as they were unable to find a cheaper new deal elsewhere.

Melanie Bien, of Savills Private Finance, a mortgage broker, said: "The cost of remortgaging means many are staying put on their lender's standard variable rate rather than pay a fee of 2 per cent or 2.5 per cent to go onto an unspectacular rate.

As novices tend not to have a surplus of cash from their lettings business because they haven't been doing it for long and don't have many properties they may have to dip into savings to meet the shortfall. Selling up is a last resort when prices are falling and the number of transactions has declined so much."